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AUSI expected utility: An anticipated utility theory of relative disappointment aversion

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  • Grant, Simon
  • Kajii, Atsushi

Abstract

In recent years there has been a growing theoretical, experimental and empirical challenge to Expected Utility Theory, the overwhelmingly dominant paradigm for modeling decision-making under risk. However, there has been relatively little work done in providing easily parameterized alternatives for applied work. In this paper we provide an axiomatization for a representation of preferences over lotteries that is only one parameter richer than expected utility. Our model is a special case of Quiggin's Rank Dependent Expected Utility. Moreover, we show that the same restriction on this parameter is required for: risk aversion; intuitive comparative static results for a reasonably general class of economically interesting choice problems; and accommodating some of the most well-known violations of Expected Utility Theory.
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  • Grant, Simon & Kajii, Atsushi, 1998. "AUSI expected utility: An anticipated utility theory of relative disappointment aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 277-290, November.
  • Handle: RePEc:eee:jeborg:v:37:y:1998:i:3:p:277-290
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    1. Segal, Uzi, 1990. "Two-Stage Lotteries without the Reduction Axiom," Econometrica, Econometric Society, vol. 58(2), pages 349-377, March.
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    Cited by:

    1. Thierry Chauveau, 2012. "Subjective risk and disappointment," Documents de travail du Centre d'Economie de la Sorbonne 12063, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Abdellaoui, Mohammed & Bleichrodt, Han, 2007. "Eliciting Gul's theory of disappointment aversion by the tradeoff method," Journal of Economic Psychology, Elsevier, vol. 28(6), pages 631-645, December.
    3. Freeman, David, 2015. "Calibration without reduction for non-expected utility," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 21-32.
    4. Carlos Laciana & Elke Weber, 2008. "Correcting expected utility for comparisons between alternative outcomes: A unified parameterization of regret and disappointment," Journal of Risk and Uncertainty, Springer, vol. 36(1), pages 1-17, February.
    5. repec:kap:jrefec:v:56:y:2018:i:2:d:10.1007_s11146-016-9593-9 is not listed on IDEAS
    6. Thierry Chauveau, 2012. "Subjective risk and disappointment," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00747902, HAL.
    7. repec:hal:journl:halshs-01025102 is not listed on IDEAS
    8. Daniel R. Burghart & Thomas Epper & Ernst Fehr, 2014. "The two faces of independence: betweenness and homotheticity," ECON - Working Papers 179, Department of Economics - University of Zurich.
    9. Kfir Eliaz & Debraj Ray, 2004. "Choice Shifts in Groups," Econometric Society 2004 North American Summer Meetings 205, Econometric Society.
    10. Thierry Chauveau, 2014. "Stochastic dominance, risk and disappointment: a synthesis," Documents de travail du Centre d'Economie de la Sorbonne 14054rr, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jan 2016.
    11. Ryan, Matthew J., 2006. "Risk aversion in RDEU," Journal of Mathematical Economics, Elsevier, vol. 42(6), pages 675-697, September.
    12. Thierry Chauveau, 2014. "Stochastic dominance, risk and disappointment: a synthesis," Documents de travail du Centre d'Economie de la Sorbonne 14054r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jul 2015.
    13. Thierry Chauveau & Nicolas Nalpas, 2011. "Disappointment Models: an axiomatic approach," Post-Print halshs-00560543, HAL.
    14. Grant, Simon & Kajii, Atsushi & Polak, Ben, 2001. "Different notions of disappointment aversion," Economics Letters, Elsevier, vol. 70(2), pages 203-208, February.
    15. Ormiston, Michael B. & E. Schlee, Edward, 1999. "Comparative statics tests between decision models under risk," Journal of Mathematical Economics, Elsevier, vol. 32(2), pages 145-166, October.
    16. Kfir Eliaz & Debraj Ray & Ronny Razin, 2006. "Choice Shifts in Groups: A Decision-Theoretic Basis," American Economic Review, American Economic Association, vol. 96(4), pages 1321-1332, September.

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